Iridium Communications (NASDAQ:IRDM) put the final touches on its next-generation satellite constellation early in 2019, and the stock has been off to the races ever since. Shares are up 38% year to date as of this writing, and the company's latest quarterly report revealed that positive business momentum continued through the halfway point of the year. With management reaffirming its upbeat outlook, there's plenty of room for this space investment to keep its run going for the foreseeable future -- even as much larger companies formulate space-based internet plans of their own.

The 2019 halftime report

With revenues up 17% and earnings before interest, taxes, depreciation, and amortization (EBITDA) up 14%, 2018 was a fantastic year for Iridium. Business moderated with just a 12% year-over-year advance in Q1 2019, and that trend continued in the second quarter as well with a 6% advance in total sales. The results are nonetheless impressive considering the company is lapping an especially strong outing last year, and many of the new services powered by Iridium's NEXT satellites are still in development.

Metric

Six Months Ended June 30, 2019

Six Months Ended June 30, 2018

Change

Revenue

$276.8 million

$254.1 million

9%

Operating expenses

$274.7 million

$218.3 million

26%

Operational EBITDA

$163.1 million

$147.2 million

11%

Operational EBITDA margin

58.9%

57.9%

1.0 pp

Pp = percentage point. EBITDA = earnings before interest, taxes, depreciation, and amortization. Data source: Iridium Communications.

Operating expenses were up sharply, mainly due to depreciation expense increasing by $59.0 million to $148.0 million during the first half of the year. It's important to remember, though, that this is a noncash expense that Iridium must record according to generally accepted accounting principles (GAAP) as its satellites age.  Interest expense also came in at $54.8 million in the first half of the year compared with $17.2 million the year prior due to refinancing and other new debt issued after NEXT completed its deployment.

Backing those items out, though, Iridium's operational EBITDA (EBITDA after excluding losses from the company's Aireon investment, share-based compensation expense, and certain construction costs) continues to improve as it adds new users to its space communications network.

A picture of earth at night from space. The European continent is in view, lit up by city lights.

Image source: Getty Images.

Trouble brewing in the upper atmosphere?

Nevertheless, the recent slowdown in revenue at Iridium could be a cause for concern. The company does, after all, face a growing list of competitors trying to make space-based internet a more important facet of everyday life -- chief (or at least most notorious) among them being Elon Musk's SpaceX. Amazon (NASDAQ:AMZN) could be readying for a push into space-based broadband internet as well with Project Kuiper. Iridium CEO Matthew Desch attempted to put some of those potential worries to rest, though, when addressing the mega-satellite threats:

Given that they [SpaceX, Amazon, and others] all have very different business plans and competitive focus than us, we're cheering them on and already see opportunities for collaboration when they eventually come to market. I know there's some confusion about the competitive threat posed by these players. Some investors and media don't seem to understand that LEO [low earth orbit] is just a neighborhood in space and a type of orbit rather than a business model on which we compete. The new mega-constellations...are seeking to compete with existing Ku-band and Ka-band operators on price and speeds. We do not view them as competitors and they are more likely to be partners in the same way that our L-band terminals [are] paired today with VSAT in maritime. The overlap between us and these potential new networks is small and a bit of due diligence on their business plans should make this apparent to investors and journalists covering these entities.

Satisfied for now? Time will tell if that's the story that pans out. However, the upside here is that Iridium has an early lead with next-gen space communications and caters to businesses, government entities and the like -- rather than mom-and-pop internet users. The NEXT satellites and the new CERTUS broadband internet service they power are only just getting started serving the maritime, aviation, and a broad array of additional industries . Iridium's new subscriber numbers tell the story, with the company continuing to add net new voice and Internet of Things (IoT) data connections both year-over-year and sequentially.

Service

End of Q2 2019 Billable Subscribers

End of Q1 2019 Billable Subscribers

End of Q2 2018 Billable Subscribers

Commercial voice and data

368,000

358,000

364,000

Commercial IoT

720,000

678,000

576,000

Government voice and data

55,000

53,000

54,000

Government IoT

70,000

62,000

53,000

Data source: Iridium Communications.

Iridium's management remains confident and reasserted its guidance for full-year revenue and operational EBITDA growth. As exciting a year as it is with the NEXT satellites now up and running, this is a period of transition for Iridium as it focuses on providing communication services and acquiring new customer connections to its network. It could take a little time for things to get up and running at full speed, but 2019 certainly got off on the right foot.